Under Secretary of Commerce For International Trade Stefan M. Selig
U.S.-China Innovation Dialogue
Tuesday, July 8, 2014
As prepared for delivery
It is truly an honor to be here in China.
Some of you may know, I have been the Under Secretary for just two weeks now, and this is my first official trip…
In light of the importance of the United States’ relationship with China, I cannot think of a more appropriate country to visit – or a forum more important to attend – on my first official travel than this innovation forum.
As the world’s two largest economies and investors in science and technology, China and the United States lead the world in creating and supporting a fertile ground for innovation.
I would like to talk about the current U.S. and Chinese legal regime for biopharmaceutical innovation and draw out a couple of key issues which we can further debate.
In the United States, our legal and policy environment has been developed to provide incentives for the private sector to innovate to address public health and other social concerns while driving economic growth.
A legal regime that supports and stimulates innovation is predicated on a few key concepts: chiefly, strong property rights, including IP protection; enforceability of contracts and laws; an impartial judicial system; and transparency.
It is critically important for a legal regime to hold government actors accountable, including permitting judicial or administrative review of government actions and ensuring due process of law.
So too is the freedom for enterprises to make operating decisions – such as how to structure their business or compensate employees to best match long-term objectives.
With this framework in mind, I would like to talk about the biopharmaceutical sector which is highly dependent on innovation for its continued success.
The United States and China together have much to offer to the world of biopharmaceutical innovation, but there is much work to be done to provide an environment that fosters innovation.
When I talk about the biopharmaceutical “sector,” I include a large number of innovative Chinese companies, which have made impressive gains in the last few years.
My remarks reflect the shared concern of innovators, both Chinese and Western, that there exist exclusivity, certainty, and transparency that induces the often risky and costly innovation that leads to tomorrow’s breakthroughs.
Regulations that protect public health are critical to maintaining the wellbeing of all citizens.
In the United States, this role is filled at the Federal level by the Food and Drug Administration, which is represented here at the forum.
One role of the FDA is to manage our clinical trial system, which the United States continues to streamline.
It is clear that those countries that offer an attractive regulatory environment for clinical trials in accordance with globally-accepted standards best position themselves to attract investment and develop innovative biopharmaceutical enterprises.
This can lead to growth in local research, increased investment inflows, and early access to the newest treatments – goals that we share.
Clinical trial regulation is an area that we hope will be improved. International companies increasingly develop drugs using multi-region clinical trials for efficient drug development and timely patient access to new medicines.
China’s current framework for the regulation of such trials poses significant delays to developers, requires redundant trials, and does not adequately recognize data from multi-regional trials.
We note that China has announced its intention to revise its Drug Administration Law, and in doing so hope that China will make the important changes to its legal and regulatory regime that will both bring it closer to international norms and provide fertile ground for innovation.
China has made significant progress recently in the development of medical device regulations.
It is imperative that these new regulations be implemented in a fair and transparent manner, with adequate time provided for stakeholder input into the development of the regulations and for subsequent compliance.
China also plans to create a Unique Device Identification, or UDI, system for tracking medical device products.
China should take into consideration international best practices when adopting a UDI system.
China’s alignment with systems used by other world regulators would not only aid the exchange of health and safety information among regulatory authorities, but would also significantly expand the global trade in medical devices.
Creating a UDI system in line with international standards in product classification would further ensure the flow of life-saving, innovative products and patents.
During the last several years, we have seen many pharmaceutical patents that were previously granted in China being challenged – and in some cases invalidated – on the basis that the applicants provided supplemental information after the date of their initial filing.
It is common practice in all major patent offices to allow supporting data after the date of initial filing because, for pharmaceuticals in particular, this data will often take years to develop and only becomes available sequentially.
We appreciate the progress made in this area over the last year, but remain concerned about outstanding appeals where invalidations have occurred and by reports of inconsistent practices among Chinese patent examiners in allowing supplemental data after the initial date of filing.
Multinationals have also long advocated for China to close loopholes in its regulations that make it impossible for drugs that are launched in other markets before China to receive a period of data exclusivity, which China committed to provide upon WTO accession.
This period of data exclusivity is critical for pharmaceuticals, as much of their patent term will have passed by the time a product receives final regulatory approval.
By defining these so-called ‘new chemical entities’ as only chemical entities that first receive marketing approval in China, China is disqualifying a great number of innovative products and lowering incentives for companies to innovate.
Additionally, the definition of a new chemical entity should clearly provide coverage for biologics – which are the wave of the future in the pharmaceuticals industry.
The final issue, and one that applies to both the biopharmaceutical industry and many others, is inventor remuneration.
Finding appropriate incentives to reward inventors’ work is critical to encouraging innovation.
We are concerned that provisions in recent drafts of China’s Regulations on Service Inventions and Science and Technology Achievement Law could introduce uncertainty over the value and ownership of intellectual property rights with the unintended effect of discouraging, rather than incentivizing innovation.
In the United States, as in many other countries, we do not rely upon mandatory compensation schemes that dictate to companies how they must compensate inventors.
Instead, market forces determine how inventors should be compensated.
Companies, research institutions, and governments are allowed to freely contract with their employees to provide employee compensation that best meets their needs of attracting and retaining talent.
From a practical perspective, mandatory statutory remuneration requirements will be quite problematic for businesses.
They can impose significant costs and regulatory burdens on innovative companies.
In certain circumstances, if employee remuneration is based on profits, companies might be forced to divulge confidential information.
Those costs are also difficult to calculate – especially for a product that has multiple innovations or inventors.
Given China’s growing importance in global R&D, we think this is a critically important issue, which is why we have requested that China make a statement at this year’s Innovation Dialogue that inventor remuneration should be the subject of contracts freely negotiated based on market forces between inventors and their employers and that China will ensure that the Science and Technology Achievement Law and related regulations will clearly embrace the principles of freedom and sanctity of contract.
Successful resolution of these challenges will result in increased innovation in both the United States and China, growing our economies and benefiting citizens of both countries and those around the world.
The many researchers and inventors here in China have the capability to drive your economy, while changing the world for the better through advancing science and medical technology.
The steps we have discussed today will not just advance medicine – they can be applied throughout all innovative fields from information technology to automobile production.
Thank you again for inviting me to speak today.
I look forward to the rest of our discussion today and the continued growth of our commercial relationship – which the United States values as one of its most important.
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